Tealeaf readers are taking Federal Reserve Board Chairman Jerome Powell’s Wednesday remarks to mean that the Fed won’t raise interest rates anymore, but such interpretations are premature. Powell seems to be giving himself maximum room for flexibility by emphasizing data dependence, and avoiding any mention of rate hikes. The global slowdown and trade tensions between the U.S. and China are creating enough uncertainty that he likely wants time to see whether the Fed should alter its rate-hike plan.

The Fed will likely hold off until at least June, but don’t rule out one or two hikes later this year. There are still many Federal Reserve Board members and staffers who think the Fed should raise rates to achieve a 3% federal funds rate to give the central bank a cushion against recession. Also, the labor market is extremely tight and wages are growing faster.

The yield curve is sagging in the middle. Rates for two-year through seven-year Treasury notes are lower than for the one-year, probably because of an expected economic slowdown. However, the 10-year benchmark rate is not expected to fall below short rates. A yield curve inversion is often cited as a recession indicator, but the relationship is not close, so a recession can come much after the curve inverts.

We see 10-year rates staying below 3% for a while. This ought to help the housing market by delaying further increases in mortgage rates. If the economy strengthens later this year as we think it will, then by the end of 2019, the 30-year fixed-rate mortgage will likely rise to 4.9% and the 15-year fixed-rate mortgage to 4.2%. If the Fed hikes twice more, then the bank prime rate that auto loans and home-equity loans are based on will bump up from today’s 5.5% to 6% heading into 2020.